A type of equity mutual fund, mid-cap funds invest in equity shares of companies with a market capitalization between Rs.5,000 crore and Rs.20,000 crore.
These mid-cap companies are ranked from 101 to 250, depending on their market capitalization.
Features of Midcap Mutual Funds
- Asset allocation: As per SEBI mandate, mid-cap funds are required to invest a minimum of 65% of total assets in mid-cap stocks.
- Risk-return ratio: The mid-cap mutual funds have a moderate to high risk-return ratio. They are less risky than small-cap funds but have a higher risk than large-cap funds.
- Taxability: Short-term Capital Gains Tax (STCG) applies 15% on capital gains if investors sell the units before 12 months. Long-term Capital Gains Tax (LTCG) is applicable if the holding period is more than one year. LTCG tax will be applicable at 10% on the gains exceeding Rupees One Lakh. Note that any amount up to Rupees One lakh in a financial year is exempted from this tax.
- Tax Deducted at Source (TDS) – A dividend from mid-cap funds exceeding Rs.5000 in a financial year attracts 10% TDS.
Who are these funds suited for?
Mid-cap funds are associated with greater risk than large-cap equity-based funds. An economic slowdown can adversely affect these funds, which may take longer to recover.
While the risk is high, the returns are also very high. Investors having the patience to sit on such an investment for more than 7-10 years should reap maximum benefits. Following is the list of factors you should consider before investing –
- Investment goal: Not all investors will have the same financial goal. Therefore, one must understand one’s investment objective before allocating capital to mid-cap funds.
- Risk tolerance: Before investing in mid-cap mutual funds, you should evaluate the risk of these funds and your tolerance level. Investors should assess if they can withstand the scale of losses without any significant dent in their financial standing.
- Expense ratio: Funds with a low expense ratio and a decent track record can help investors maximize their returns.
- Past performance: Individuals can gauge a fund’s future returns from its historical performance. It can help investors understand the fund’s volatility, consistency, strengths and weaknesses, and investment style and help them compare it with other funds.
- Team experience: A fund manager’s decisions directly affect the scheme’s returns. Investors need to examine a manager’s skill set that aids in their research and analysis of best mid-cap mutual funds.
Major advantages of investing in the best midcap mutual funds
Following is a list of notable advantages of the best mid-cap mutual funds:
- Significant growth potential: Mid-cap companies are probable future large-cap companies. This gives them excellent expansion potential. During this journey, they can deliver huge returns and outperform large-cap mutual funds.
- Diversification: The distribution of investment among stocks of different mid-cap companies cushions them against economic shocks. As a result, the best mid-cap mutual funds bear less risk than a direct investment in such stocks.
- Low investment amount: Individuals can start investing as low as Rs.500 in mid-cap equity-based funds. It allows investors to diversify their investments across different schemes to minimize concentrated risk.
- Transparency: The Securities and Exchange Board of India (SEBI) closely mandates all mid-cap mutual funds to display their NAVs, expense ratios, and month-end portfolios on their websites. The apex body also closely regulates these data.
- Investment mode: Individuals can invest in mid-cap mutual funds via lump sum or Systematic Investment Plan (SIP). The former allows investors to allocate all savings in one go. The minimum investment has to be Rs. 1,000. On the other hand, SIP allows individuals to invest at fixed intervals (monthly, quarterly, etc.). Here, the installment amount starts from Rs.500 in most cases.
Best Midcap Funds to Invest in 2023
| Funds | Rating | Expense Ratio (%) | Assets (Cr) | 5 Yr Ret (%) | 10 Yr Ret (%) | Fund Risk Grade | Fund Return Grade | Std Deviation |
| Axis Midcap Fund | 5 | 0.53 | 19,144 | 14.89 | 18.22 | Low | Above Average | 19.92 |
| Kotak Emerging Equity Fund | 4 | 0.49 | 23,335 | 13.42 | 19.72 | Below Average | Above Average | 24.54 |
| Nippon India Growth Fund | 4 | 1.04 | 13,597 | 12.62 | 16.26 | Average | Above Average | 24.85 |
| PGIM India Midcap Opportunities Fund | 5 | 0.44 | 7,558 | 17.27 | — | Low | High | 24.63 |
| Quant Mid Cap Fund | 5 | 0.63 | 1,330 | 19.43 | 16.49 | Average | High | 23.25 |
Source: Valueresearch Online
Axis Midcap Fund
- About the fund
The fund invests in mid-sized companies that have the potential to become big. It looks for durable businesses with strong financial metrics.
The mid-sized tends to offer higher growth potential than larger companies and thus comes with relatively higher risk than large-cap but lower risk than smaller-sized companies.
- Who should invest?
Investors looking for capital appreciation over the long term are ok to remain invested for a long-term period of 5-7 years.
Kotak Emerging Equity Fund
- About the fund
The fund operates with the objective of generating long-term capital appreciation from a portfolio of equity and equity-related securities by investing predominantly in midcap companies of different sectors.
These companies are either at their nascent or developing stage and are under-researched. Although relatively volatile in the short run, midcap companies have the potential to deliver higher growth in the long term.
- Who should invest?
Investors looking for capital appreciation over the long term are ok to remain invested for a long-term period of 5-7 years.
Nippon India Growth Fund
- About the fund
The fund invests with the objective to generate capital appreciation & provide long-term growth opportunities. The fund invests in a portfolio of Mid Cap companies across sectors.
- Who should invest?
Investors looking for capital appreciation over the long term and are ok to remain invested for a long-term period of 5-7 years.
PGIM India Midcap Opportunities Fund
- About the fund
The fund invests with the objective to generate capital appreciation & provide long-term growth opportunities. The fund invests in a portfolio of Mid Cap companies across sectors.
- Who should invest?
Investors looking for capital appreciation over the long term are ok to remain invested for a long-term period of 5-7 years.
Quant Mid Cap Fund
- About the fund
The fund invests with the objective to generate capital appreciation & provide long-term growth opportunities. The fund invests in a portfolio of mid-cap companies across sectors.
- Who should invest?
Investors looking for capital appreciation over the long term are ok to remain invested for a long-term period of 5-7 years.
These are some of the best mid-cap funds to consider for your next investment. Need help choosing the right funds for your financial goals? Connect with our experts today and get help curating your investment plan!
